As CalPERS Cuts Projections, Governments Brace for Higher Pension Costs
While many of you were out last minute holiday shopping last week, the nation’s largest pension fund was finally coming to grips with reality about its rosy investment forecasts. Unfortunately, California’s local governments are the ones who will end up paying the price.
The board of the California Public Employees’ Retirement System is lowering expectations for future investment returns, a step that will increase pressure on the budgets of towns and cities across the state…
“This is very monumental for the organization,” one trustee, Richard Costigan, said at a public meeting just before the vote.
With the move, CalPERS is changing its business plan, so that investment returns will cover less of the cost of pensions than previously. That will force local governments to pay more, either through higher taxes or reduced public services. Public workers in California will have to chip in more, too.
Critics have long argued that the pension fund’s investment projections were just wishful thinking and that its methodology is inherently flawed. With its decision to downgrade portfolio projections from 7.5 to 7 percent (it debated going even lower), the agency has acknowledged its numbers were overly optimistic. The decision means pension costs for state and local governments will begin to rise in 2017. Eventually, the nation’s other pension systems are likely to follow suit.
What a way to cap off 2016.
Read more about the implications of Dec. 21 decision here.